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Rising inflation fears are hitting euro zone economic growth prospects, with Germany reporting that consumer confidence was the worst for more than two years.
Soaring energy prices, which have driven the euro zone's inflation rate to the highest level for 16 years, were blamed by the Nuremberg-based GfK market research organisation for a rapidly deteriorating mood on the country's high streets. It forecast its "consumer climate" index would drop to 3.9 points in July - the lowest since December 2005.
France, meanwhile, reported a surprise two per cent jump in consumer spending in May. But economists said the data had been distorted by improving weather last month and followed two consecutive monthly falls.
Gilles Moec at Bank of America said French consumers were having to adjust to falling real wages. Consumer spending was on "a weakening path, as in Germany", he said.
Such trends could prove crucial to future euro zone growth. Consumer spending has been a main driver of French economic growth, and the relative optimism about Germany's economic prospects have largely assumed consumer spending will take over from exports as a engine of growth.
But GfK said said it expected German private consumption to grow by just 0.5 per cent this year - compared with the one per cent it had forecast previously.
Inflation has overtaken unemployment in importance in the minds of European Union citizens, according to a survey published by the European Commission. Some 37 per cent of those polled cited inflation as the most important issue in their country - 11 percentage points more than in autumn last year.
Public angst
Rising public angst about inflation will strengthen the resolve of the European Central Bank, which plans to raise its main interest rate by a quarter percentage point to 4.25 per cent next week to combat inflation.
However, an ECB executive board member argued last week that Europe's politicians could help offset declines in consumers' purchasing power by introducing measures that lifted productivity. Lorenzo Bini Smaghi said EU initiatives to boost service sector competition could prove the most efficient solution - but had failed in the past because of opposition by some member states.
He added that "the confusion that many citizens feel about Europe" had been reflected in Ireland's recent rejection of the Lisbon reform treaty, which is intended to increase the efficiency of EU's institutions.
"The real problem of the last 10 years has been the lack of clarity on the level of policy responsibility between national and European decision making," he said.
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